1. Do you know the five different components of a credit score? They are…(1) Credit History -35% (2) Current Balances - 30% (3) Length of Credit History - 15% (4) New Credit - 10% and (5) Types of Credit - 10%.

2. On this note, let’s talk maxed out credit cards. With the exception of negative data, the fastest way to lose (or raise) a credit score is with revolving balances. Did you know that maxing out your credit card can cost you between -10 to -45 points? Unlike some damage, the good news about revolving balances is that just as quickly as you lose the points by running up the balances, you can get them back by paying them down. Reminder - according to the bureaus it is optimum for your credit score to keep your revolving balances at approximately 35% of your limit.

Home is a place you should feel safe and secure. Sometimes, we take it for granted and unfortunately, we do need to remain vigilant about things we do that could compromise our safety. Here are a few tips to consider:

• Everyone loves an inviting home including burglars. Make sure it looks occupied and is difficult to break in.

• Always lock outside doors and windows even if you’re only gone for a brief time.

• Lock gates and fences.

• Leave lights on when you leave; consider timers to automatically control the lights.

• Keep your garage door closed even when you’re home; don’t tempt thieves with what you have in your garage.

• Suspend your mail and newspaper delivery when you’re out of town or get a neighbor to pick it up for you.

• Posting that you’re out of town or away from home on social networks is like advertising your home is unprotected.

Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.”

A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.

The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.

With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.

Leverage is just one of the many benefits that make rental real estate the IDEAL investment. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive because homeowners have a better understanding than many other investments and self-management is a possibility.

Assumptions are an Alternative

In the late 80’s, both FHA and VA began requiring buyers to qualify to assume their mortgages. The main reason there haven’t been many assumptions in the past 25 years is that interest rates have been steadily going down and if a person has to qualify, they might as well do it on a new loan and get a lower interest rate.

Based on projections by Fannie Mae, Freddie Mac, the MBA and NAR, rates for the second half of 2017 and 2018 are expected to be higher. When interest rates on new mortgages are higher than the rates of assumable FHA and VA mortgages in the recent past, it becomes more advantageous to assume the existing mortgages.

FHA and VA loans originated with lower than current interest rates have great advantages for buyers and sellers.

Interest rate won't change for the qualified buyer

Lower interest rate means lower payments

Lower closing costs than originating a new mortgage

Easier to qualify for an assumption than a new loan

Lower interest rate loans amortize faster than higher ones

Equity grows faster because loan is further along the amortization schedule

Assumable mortgage could make the home more marketable

An Assumption Comparison can help determine the savings and financial benefits of an assumable mortgage with a lower rate.

There is increasing difficulty for first-time home buyers to save for their down payment as indicated in the graph. Several factors that contribute to this trend include rising rents, rising home prices, student loan debt and flat wages.

Some would-be buyers feel they cannot buy a home today but a large part of those decisions may be based on inaccurate assumptions.

Nine out of ten non-owners believe they need ten percent or more for a down payment. The typical down payment for first-time buyers is six percent. VA has 100% loan programs as well as USDA for certain qualifying areas and buyers. FHA is known for 3.5% down payments. And FNMA and Freddie Mac have down payments as low as 3% and 5%.

There are gift provisions available for buyers who have an “angel” who would like to help them with their down payment.

There are ways to borrow against a person’s qualified retirement program for a down payment. It isn’t necessarily limited to the buyer but could include a relative. Interestingly, a son or daughter can borrow against their retirement to benefit their parents.

In some respects, having good credit and sufficient income is more important than the down payment. Don’t rely on “common knowledge.” Get expert advice and counsel to see if there is a way to advance your dream of owning a home.

Businesses must treat customers fairly if they expect to do business with them again or get recommendations to their friends. Customers of stores like Nordstrom’s understand that a salesperson is an employee and represents the company.

The line becomes less clear in some industries, especially ones that involve real estate. Agency is a legal relationship authorizing a person to act for or in the place of another. It involves responsibilities that exceed treating a person fairly.

The duties a buyer or seller can expect to receive from a real estate salesperson or broker include but are not limited to honesty, accountability, full disclosure, representation and reasonable skill and care. Buyers and sellers might additionally expect representation, obedience, loyalty and confidentiality. State laws can differ on specific duties.

Mortgage and title officers are limited in their duties to the buyer to honesty and accountability and specific requirements under the federal Real Estate Settlement and Procedures Act.

A special relationship with a real estate agent makes it advantageous to have them coordinate efforts with the other professionals in the home buying process. Since most buyers’ and sellers’ transactions are infrequent, the agent can bring valuable experience to the transaction.

Every buyer and seller should discuss the level of service they expect from the real estate professional they work with. Another good question is what happens if the purchase and sale are within the same company.

The top reason mortgage applicants nationwide get rejected is because they’re carrying too much debt relative to their monthly incomes. Fannie Mae will be raising its DTI ceiling from the current 45 percent to 50 percent as of July 29. (iStock)

It’s the No. 1 reason that mortgage applicants nationwide get rejected: They’re carrying too much debt relative to their monthly incomes. It’s especially a deal-killer for millennials early in their careers who have to stretch every month to pay the rent and other bills.

But here’s some good news: The country’s largest source of mortgage money, Fannie Mae, soon plans to ease its debt-to-income (DTI) requirements, potentially opening the door to home-purchase mortgages for large numbers of new buyers. Fannie will be raising its DTI ceiling from the current 45 percent to 50 percent as of July 29.

DTI is essentially a ratio that compares your gross monthly income with your monthly payment on all debt accounts — credit cards, auto loans, student loans, etc., plus the projected payments on the new mortgage you are seeking. If you’ve got $7,000 in household monthly income and $3,000 in monthly debt payments, your DTI is 43 percent. If you’ve got the same income but $4,000 in debt payments, your DTI is 57 percent.

In the mortgage arena, the lower your DTI ratio, the better. The federal “qualified mortgage” rule sets the safe maximum at 43 percent, though Fannie Mae, Freddie Mac and the Federal Housing Administration all have exemptions allowing them to buy or insure loans with higher ratios.

Studies by the Federal Reserve and FICO, the credit-scoring company, have documented that high DTIs doom more mortgage applications — and are viewed more critically by lenders — than any other factor. And for good reason: If you are loaded down with monthly debts, you’re at a higher statistical risk of falling behind on your mortgage payments.

Using data spanning nearly a decade and a half, Fannie’s researchers analyzed borrowers with DTIs in the 45 percent to 50 percent range and found that a significant number of them actually have good credit and are not prone to default.

“We feel very comfortable” with the increased DTI ceiling, Steve Holden, Fannie’s vice president of single family analytics, told me in an interview. “What we’re seeing is that a lot of borrowers have other factors” in their credit profiles that reduce the risks associated with slightly higher DTIs. They make significant down payments, for example, or they’ve got reserves of 12 months or more set aside to handle a financial emergency without missing a mortgage payment. As a result, analysts concluded that there’s some room to treat these applicants differently than before.

Lenders are welcoming the change. “It’s a big deal,” says Joe Petrowsky, owner of Right Trac Financial Group in the Hartford, Conn., area. “There are so many clients that end up above the 45 percent debt ratio threshold” who get rejected, he said. Now they’ve got a shot.

That doesn’t mean everybody with a DTI higher than 45 percent is going to get approved under the new policy. As an applicant, you’ll still need to be vetted by Fannie’s automated underwriting system, which examines the totality of your application, including the down payment, your income, credit scores, loan-to-value ratio and a slew of other indexes. The system weighs the good and the not-so-good in your application, and then decides whether you meet the company’s standards.

Fannie’s change may be most important to home buyers whose DTIs now limit them to just one option in the marketplace: an FHA loan.

The big downside with both Fannie and Freddie: Their credit-score requirements tend to be more restrictive than FHA’s. So if you have a FICO score in the mid-600s and high debt burdens, FHA may still be your main mortgage option, even with Fannie’s new, friendlier approach on DTI.

A professional Realtor can go a long way in helping you get through the home buying process with the least amount of drama.

Step 1 to buying a home should be Find a Real Estate Agent you trust to help you. This person may become your lifeline during what can be a somewhat stressful transaction. You may end up making many calls and/or emails to seek guidance, information; and sometimes, quite honestly, just to vent about the loan process or financial hoops you have to jump through.

Step 2 is Get Pre-Approved For a Loan before you start shopping. This will help you have a realistic expectation of what you can afford for a house. This also gives you the ability to move forward quickly when you find a house you want to buy. I am happy to recommend a Loan Officer and lender who will work hard to approve a loan for you!

Step 3 is Start House Shopping! Be sure you are buying a house that you can see yourself living in for a while. Typically you do not want to be back in the market in just a few years. The same is true for financing - make sure the loan you get is something you can handle for the long term. Be aware of the terms. If you decide on a variable mortgage, make sure you understand when rates are going to go up, and, if there are balloon payments, when balloon payments are due & how much.

Buying a home now, in the F-M Area, should be a great investment! Interest rates are very low, & our economy is one of the best!The Best time to buy is NOW! Prices are increasing!

Morris Pyle, Realtor Emeritus, RE/MAX Legacy Realty

Just call or email me to get my 40+ years of experience to help you purchase your dream home! 701-238-1652 or morrispyle@gmail.com

Credit card debt in America is back to levels prior to the recession. The average credit card APR is just under 16% according to CreditCards.com Weekly Credit Card Report. Homeowners have an advantage over renters when it comes to getting their arms around debt issues.

Borrowing against a person’s home usually provides the lowest rate of financing. Refinancing a home mortgage to take cash out to retire personal debt is one option. Another would be to secure a home equity or HELOC, home equity line of credit.

An alternative advantage of borrowing against one’s home is that the interest may be tax deductible unlike the interest on most personal debt. Qualified mortgage interest includes acquisition debt which can only be used to buy, build or improve a principal residence and up to $100,000 of home equity debt which can be used for any purpose.

Managing money is a critical life skill that people need to master. While the goal may be to become debt-free, paying the least amount of interest possible can be a good first step. Owning a home provides an asset that allows for options not available to tenants. Seek professional advice to determine your best course of action.